Ukraine on Friday made a crucial Eurobond interest payment that kept the war-torn country from slipping into technical default and potential isolation from global credit markets. Two sources close to the situation told AFP that money to cover the $120 million (110 million euro) coupon was transferred as soon as business hours opened in Kiev.
The cash-strapped former Soviet nation now has two more months to negotiate a debt restructuring deal before it faces a tougher deadline to make principal and interest payments of more than $500 million on another note on September 23. Franklin Templeton and three other US financial titans own about two-thirds of the debt upon which Ukraine is trying to find savings of $15.3 billion over the coming four years.
That target is part of a $40-billion global package the International Monetary Fund patched up to help Ukraine weather an economic implosion that was exasperated by the pro-Russian revolt in its industrial east. The IMF signalled on Thursday that it could release $1.7 billion in fresh funds next week even if Ukraine fails to reach the private sector debt relief deal.
But some analysts called the very fact that Ukraine made Friday's payment an indication that Kiev's talks with the US giants are now proceeding smoothly after more than three months of delay. "If there was no progress in the negotiations, we would have put up more of a fight about making the payment," Dragon Capital investment firm analyst Sergiy Fursa said in a research note.
"Judging by the latest news from the closed-door talks, which both sides give out very unwillingly, their advisers are engaged in active negotiations and now working on the technical details of a deal," Fursa wrote. Ukrainian Finance Minister Natalie Jaresko had repeatedly threatened to impose a debt repayment moratorium as early as Friday should the bondholders fail to take a more compromising stand toward Kiev during talks now underway in Washington.
The IMF on Thursday raised market expectation of a restructuring agreement being struck before its board discusses Ukraine at a meeting tentatively set for July 31. IMF spokesman Gerry Rice told reporters that Jaresko's team and the so-called Ad Hoc Committee of Ukraine's Bondholders "have been making good progress in their discussions." "Further progress is expected by July 31," Rice said.
Kiev's international allies are pitching in as part of their own effort to keep the strategic east European nation from slipping back into its historic reliance on Russia - an uneasy neighbour that denies involvement in Ukraine's separatist war. But a technical default sparked by the lack of a commercial debt compromise would make the longer-term cost of borrowing even more expensive and push back Ukraine's prospects for a quick return to growth.
US Treasury Secretary Jack Lew has also urged lenders to support Washington's efforts to help the pro-Western leadership that rose to power in the wake of last year's popular overthrow of a Russian-backed president. Ukrainian Prime Minister Arseniy Yatsenyuk warned on Friday that the IMF had yet to reach a "final decision" on keeping its rescue for Kiev alive.
IMF support will be vital as Ukraine approaches a peak in payments that is capped by the return of $3.0 billion Moscow lent to Russian-backed president Viktor Yanukovych just two months before his overthrow in February 2014. Moscow has refused to join the debt restructuring negotiations and expects the money on December 20. But Kiev must also must pay back more than 600 million euros ($655 million) to Western creditors in October. Smaller amounts come due in subsequent weeks.
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